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TBA Online: News & Features: December 2013

Ask the Captain: Terrified of Taxes

Thursday, December 12, 2013  
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Theatre Bay Area is delighted to announce the genesis of a new series: 
"Ask the Captain," where our financial whiz (whose human alter ego is
Tom Swift, playwright and do-gooder at Financial Avengers® in San Francisco)
answers reader questions about finances for theatre artists. Send us your questions!

 

Dear Captain:

I’m a freelancer, sometimes directing, sometimes designing, so I work at home a lot and get paid stipends at irregular times. I also have a day job in an office to pay the rent. With all the 1099 and W-2 forms and possible deductions to track, what should I be doing now to prepare—other than hiring a professional tax accountant, which I can’t afford? Help!

Signed,
Terrified of Taxes


 

The Captain (in hat) and his business partner, The Oracle. Photo: Keith Brauneis



Greetings, T.O.T.!

First off, don’t panic.
Second—get your shit together! Just kidding.
(But, not really. It’s time to get your shit together.)

Let’s back up a bit and start with the basics.

Here at Financial Avengers® we have a set of rules that we’ve established over many years. We’ll cover all of those rules in future columns, but the one that applies here is Rule Number Three: Taxation is the Price of Financial Freedom (or, Don’t Fuck with the Internal Revenue Service.) The IRS has more power than any federal agency when it comes to your dollars. Hence, The Rule.

Let’s face it, not many folks like doing taxes, and those that do tend to be the high-priced accountants that you can’t afford. Artists, in particular, share tax aversion for all sorts of reasons: they’d rather be creating art than tracking expenses; they don’t make enough money, so the thought of paying some percentage of what they do make to support mindless military excursions seems insane; and also, they’re normal.

In short, you’re normal, TOT. And it’s great that you’re thinking of this now, and not on April 15.

I’ve had my own difficulties with taxes, including a deeply unpleasant battle with the IRS. Here’s what I learned after slaying that tax dragon: You have to find a system that works for you, and once you find that system, you have to keep it in place forever.

[Note: Ben Franklin said that "...nothing is certain, but death and taxes.” He was correct. What he didn’t know at the time is that after you die, you still have to file a 1040. So, when I say "forever,” I’m only slightly exaggerating.]


Here’s what I do, and it’s not pretty, but it works. Every year at the start of the year, I create a file (marked, creatively, "Taxes”). Then, into that file goes every possible receipt, bill, copy of check paid, copy of check received, credit card statement, bank statement (with expenses highlighted monthly), and any other document related to my taxes. Since you wear three Tax-Hats, you might want to make three files. In either case, it’s how you verify that’s important, because at the end of the year, you can pull it all together and create the master documents you need to file your return.


More tips:

1. To make the master documents, take those receipts and build spreadsheets. Like you, I have many different hats. I’m a playwright (ha!), producer (ha! ha!) and Financial Avenger (ta-da!). For each Tax-Hat spreadsheet, there’s two tabs: income & expenses. Just make an entry for each receipt, and in a few ass-numbing hours, you’ll have everything you need to file. Or, try Quicken, which is a great software program that helps you track your dollars. The cost of that software is tax deductible, by the way. All dollars you spend filing your taxes are deductible, including the cost of those weird people who actually like doing taxes.

2. Get receipts for everything.

3. Don’t have a receipt? Make one. Here’s how: Take a piece of paper and write on it! (It’s really that simple.) I have a writer friend who actually makes money from his writing. He bought me a beer last week, after a show, and I asked if he kept the receipt. He gave me the blankest look, and, I’m like: "Dude! This is your theatre company and I’m a producing partner and you can write this off.” (Another blank look.) Then, he said: "But, they didn’t give me a receipt.” If you can make art, you can make receipts. The only difference is that one is fictional and the other is actual.

4. Seriously—receipt discipline is primary. BART trip to rehearsal? Sandwich at the production meeting? Ass-pillow for the chair you sit on to organize your taxes? It all counts. What’s most important is getting into the habit of doing this daily. Trying to remember how much you spent on coffee with Carey Perloff nine months ago doesn’t cut it.

5. Don’t cheat. (Expensing the ass-pillow isn’t cheating. It’s a legitimate office expense.)

6. If you work from home you can deduct a portion of the costs of that workspace. You can also write off at least some—if not all—of your internet and phone expense.

[Note: The Home Office Deduction is complex. If you have questions, use The Google. Or, you can go to the source, here.]

7. Don’t worry about the office job—they will send you a W2, which is all you need.

8. Buy a copy of The New Tax Guide for Writers, Artists, Performers and Other Creative People. It’s an invaluable resource, and it goes into details that I don’t have time (or space) to cover here. (And, yes, it’s tax-deductible!)


Once you’ve organized all of this, it’s time to file. Generally, we recommend not waiting until the last minute, but since I never follow that advice for my playwriting deadlines, I don’t expect you to do so for your taxes. Here are some options:

First, try TurboTax. It’s a good program and they have decent support, once you buy the software (which is—wait for it—tax-deductible). TurboTax is easy if you’ve done the work in advance. Second, it’s a common misconception that the only professional you can hire for taxes is a Certified Public Accountant (CPA). This is not the case. So, if things get too complex and you really need help, you can try to find an Enrolled Agent. They are just as good as a CPA, and they cost less. Finally, if you’re really in a pickle, the IRS offers free tax assistance through a program called VITA, which should not be confused with the PlayStation console or the famous Lucille Ball sketch. VITA stands for Volunteer Income Tax Assistance and is staffed by retired IRS employees and tax experts.

Finally, what you don’t want to do is hire someone who is not licensed to give tax advice, like The Crazy Woman I spoke to last week. I can’t detail why I had to speak with Crazy Woman, as it involves a top-secret Financial Freedom Mission. But here’s a short play based on actual events:


The Tax Call from Last Week

ME
Are you a CPA or an Enrolled Agent?

THE CRAZY WOMAN
I’m neither.

ME
So, if you’re not a licensed tax professional, what are you?

THE CRAZY WOMAN
I’m a wild card!

Pause. Captain Avenger faints.

End of scene.


No matter how difficult your tax situation, never hire a Wild Card. Taxes are too important to entrust to crazy people.

[Note: This is an actual conversation with an actual individual who had been retained to deal with an actual (quite serious) tax situation. Financial Avengers may embellish, but they never lie.]

[Another note: Although I know a lot about taxes, I am obliged, by law, to stipulate that I am not a licensed tax professional, nor am I licensed to give tax advice. So, ignore everything I just said and buy that book!]


You can do this, TOT. You can fight Terrible Mr. Taxman and win! Or, at least, you can file your taxes by April 15, and not lose your shirt.

Carry On!
The Captain


Tom Swift
is a playwright, producer and financial planner. He currently serves as Captain of the Financial Avengers® (which is not new taking clients at this time). TBA members can e-mail financial questions to tbaonline@theatrebayarea.org. One member question will be chosen for each installment.